Why are tenant-caused claims still hitting my loss runs?

Side view of two people siting next to each other at a desk. There is a laptop in front of each person, and a stack of papers between this. The only part of the people that is visible is their hands, one of which is writing something on the stack of papers.

One of the biggest issues real estate owners and operators solve for is reducing the impact of tenant-caused risk. Successfully managing single- and multi-family portfolios of size requires continual vigilance and full visibility across the entire portfolio. 

Despite best efforts of minimizing risk, tenant-caused claims will always appear on loss run reports, impact aggregate rententions, erode deductibles, and have a lasting impact of five years or more. This is due to 3 main factors:

  • Compliance Gap: Up to 31% of your tenants are experiencing a gap in compliance, or are on their way to becoming uninsured, caused by such circumstances as policy cancellations, bad data, moral hazard, and fraud. 
  • Care, Custody and Control: The 3 C’s of liability are not black and white; Care, Custody, and Control is an exclusion in general liability that removes coverage for someone else’s property damaged while in your possession. 
  • Negligence Difficult to Prove: Negligence by residents is hard to prove. Negligence laws are often unclear, and causation can be difficult to trace, making it hard to hold someone financially responsible.
A loss run report is required when providing a submission for insurance. During the underwriting process, claims history is one of the biggest factors looked at, and if there are multiple claims, the premium will simply be much higher. For a ten thousand unit portfolio, 31% of uninsured tenants becomes $500,000 to $1,250,000 in increased premium over five years. The focus of this paper is to outline how to minimize the impact and frequency of tenant-caused risk that directly impacts loss runs and premiums. 
Image of stick figure man running towards text that says 31 percent of tenants are uninsured

1. Compliance Gap

88% of apartment management companies require insurance. Despite this requirement, 31% of all tenants at institutionally-managed properties remain uninsured. This is due to a number of factors, most notably policy cancellations, bad data, and fraud. 

Policy cancellations: 19.5% of the 31% of uninsured tenants are due to policy cancellations. Policy cancellations occur as a result of nonpayment of premium, policy expirations, and intentional cancellations. 19.5% of policies cancel within the first 180 days of issuance.

Bad data: 8.5% of uninsured tenants are due to bad data. Bad data includes incorrect policy numbers, incorrect policy effective and expiration dates, or invalid carrier names.

Fraud: 3% of uninsured tenants are due to outright intentional fraud – a quote, application, or writable PDF submitted as proof of coverage.

Without the necessary insurance training to sort through the above differences, accidental approval of a fraudulent certificate can lead to a loss in which there is no coverage or possibility of subrogation. These types of losses have a direct impact on your company’s loss runs and insurance costs for 5 years or more. 

2. Care, Custody and Control

Found in commercial liability insurance policies, a care, custody, and control exclusion removes coverage for someone else’s property that is damaged while in your possession. Rented property is often left uncovered by care, custody or control exclusions. 

Property coverage that falls under a care, custody, and control exclusion varies, making it hard to guarantee. When a claim is filed, courts review the case to decide if the exclusion should be upheld or denied.

3. Negligence is Difficult to Prove

Sometimes the only way to resolve a conflict between property owner and tenant is in court. It can be extremely difficult to hold someone financially responsible for a problem they could have prevented, and negligence laws are often unclear. 

Negligence is defined as a failure to take proper care when doing something, or the failure to exercise the degree of care that a reasonable person would exercise under the same circumstances.

Some examples:

  • An outside fire caused by a flicked cigarette – but where did it come from?
  • Fire sprinkler goes off inside a unit – malfunction or did the resident hit it by mistake?
  • Toilet overflow – did a toddler flush a toy, or was the unit defective?

Negligence claims must prove one of four things; breach, causation, duty, or damages. It can be be extremely difficult to prove in court. Without possessing solid evidence, how do you prove a case? Of course, insurance inspectors are trained to evaluate this type of damage correctly, but depending on the situation, proving negligence can be nearly impossible.

Loss Runs

The same way credit scores allow banks to determine good candidates for bank loans or credit cards, loss runs allow insurers to assess how risky your portfolio will be to insure. By requesting your loss runs, an insurer can review:

  • Past claims filed
  • The financial impact of filed claims
  • The frequency of prior claims
A loss run report is required during both the application and renewal process. When the new insurance application is going through underwriting, claims history is one of the biggest factors looked at to determine coverage and rates. 

If you have multiple claims, your premium will simply be much higher. This is less than ideal in the current hard market where insurance is in high demand and low supply. 

During a hard market, stringent underwriting is strictly adhered to, premiums remain high, and only a limited number of policies are written. Insurers are not likely to negotiate terms, so if your loss run report has a colorful history, you are not likely to get a good deal.


A loss history can have an impact on your portfolio’s overall insurance rates and profitability potential for years. A sound resident risk management strategy is the best course of action to maximize profitability, and it doesn’t have to be difficult. Establishing a compliance team that is trained in insurance processing is the best way to manage this risk and avoid excessive claims submissions. 

31% of uninsured tenants in a 10,000 unit porfolio equals $500,000 to $1,250,000 in increased premium over a period of 5 years. Property managers should never handle certificates of insurance unless they possess the correct training. Implementing an experienced compliance team at scale can help save your company hundreds of thousands of dollars in the long run, while maintaining good rates and producing loss-run reports that are viewed favorably during the application and renewal process.

*Methodology: This LeaseTrack study presents the findings of a survey conducted among a sample of 100,000 units nationwide, and policies in effect from January 1, 2018 to July 1, 2018